EUR/USD Whipsaws as Policy Left Unchanged With Continued Dovish Message

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Key Talking Points:

  • EUR/USD jumps then reverses as ECB delivers policy guidance
  • Inflation continues to be below target
  • Asset purchases to remain in place until rate hike is necessary

EUR/USD has attempted to pick up some bullish momentum as the European Central Bank leaves monetary policy unchanged, but the gains have quickly reversed. The pair has been stuck in a descending trend since the beginning of June when the US Dollar started picking up bullish momentum, falling close to a 4-month low on the back of concerns regarding economic recovery and inflationary pressures in the Eurozone. Although the unchanged policy was largely expected, it is also viewed as a slightly positive tilt for the euro as there was also talk about a possibility of loosening conditions even further.

One of the key remarks of the press release is that rates have been close to their lower bound for some time and the medium-term outlook for inflation is still well below its target, although they do expect inflation to be moderately above target in a transitory period.

The central bank has stuck to its current pace of asset purchases to reinforce the accommodative impact of its policy rates, and is expected to hold until it is ready to start raising rates. The ECB is viewed as one of the more dovish banks in Europe so today’s remarks are no surprise for markets, which were largely expecting the message to be unchanged.

Watch ECB President Christine Lagarde and Vicepresident Luis De Guindos explain the Governing Council’s decision at the live presser at 13.30 BST.

EUR/USD 1-minute chart

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

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